Philippines: Growth projected at only 4.1% in 2023

MANILA, Philippines — The Philippine economy may grow by just 4.1 percent next year, below the government’s target of 6.5 to eight percent, due to elevated inflation and the risk of a global recession, according to Economist Impact, the research arm of The Economist Group.

Economist Impact regional policy and insights head Andrew Staples warned the Philippine government to prepare for higher cost of borrowings abroad as central banks everywhere try to arrest inflation by raising their interest rates.

“If you look at the macroeconomic level, at the global economy, there are problems that raise the risk of a global recession. The strength of the US dollar is causing monetary tightening around the world,” Staples told The STAR.

“Interest rates are going up and that means debt is more expensive, which is ultimately in some economies going to choke off economic growth. The number one mission for most central banks is to choke off inflation, which has reached unprecedented levels we haven’t seen in decades,” he said.

For this year, Staples said Economist Impact expects the Philippine economy to grow by 7.6 percent, more than double the regional forecast for Asia of 3.5 percent.

While Philippine economic growth is projected to slow in 2023, the outlook still beats the 3.4 percent forecast for Asia as a whole.

The Cabinet-level Development Budget Coordination Committee (DBCC) targets a GDP growth of 6.5 percent to 7.5 percent in 2022 and 6.5 percent to eight percent from 2023 to 2028.

The DBCC, in its assumptions, also expects inflation to remain a headache for the next 12 to 18 months, especially with Dubai crude seen reaching $80 to $110 per barrel from 2022 to 2023. It expects inflation to average as high as 5.5 percent for 2022 and 4.5 percent for 2023.

“Inflation is something that globally we are struggling with coming from price increases in energy costs. Economies importing a lot of energy have to buy at inflated prices,” Staples said.

The Bangko Sentral ng Pilipinas in September delivered a 50-basis -point hike to push the policy rate to 4.25 percent and could further tighten by at least 75 bps for the remainder of the year.

By jacking up interest rates, the central bank wants to raise borrowing costs and, in turn, reduce demand for inflationary drivers, such as properties and vehicles.